Manufacturing adds to rate rise ammo

HOPES of any rate cut in the near-term took a further blow today as the manufacturing sector reported its best performance for almost a year in March.

The Office for National Statistics (ONS) said industrial firms increased output by 0.7% on the previous month - much greater than the 0.2% forecast in the City.

The improvement, which ensures a 0.7% rise in the sector over the first three months of the year, was led by growth in electricity, gas and water supply industries as well as consumer durables.

Andy Martin, national director of manufacturing at Barclays, said: 'The month-on-month and quarterly rises are encouraging. These figures clearly reflect the underlying optimism that has been flowing through the sector over the past few months.'

The improved performance raises the chances that the Bank of England's monetary policy committee will need to increase interest rates later this year.

In a report yesterday the Bank indicated that at least one rate rise would be necessary to keep inflation on track to meet its 2% target.

ING economist James Knightley said a rate rise could come as soon as August, although he pointed out such a move was likely to be in isolation.

He added: 'With the household sector of the economy still under downward pressure from rising taxes, higher unemployment and higher utility bills, market expectations on a string of further rate rises remain overdone in our view.'